Tenn. prepares to lose 30 percent of federal funds

Friday, August 19, 2011, Vol. 35, No. 33

NASHVILLE (AP) — Tennessee state agencies are assembling plans for how they would cope with losing up to 30 percent of their federal funds in anticipation of coming spending cuts

A letter from Finance Commissioner Mark Emkes calls on agency heads to submit two sets of plans by Wednesday: one for how they would cut 15 percent of federal aid, and another for reducing those funds by 30 percent.

Emkes said in the letter that national credit rating agencies have asked the state to present plans of how it will respond to anticipated cuts in federal funds, which make up about 40 percent of Tennessee's $30.8 billion annual budget.

"While it is not possible for the state to know now what specific program reductions will be implemented by the federal government, we must plan," Emkes wrote in the letter dated Thursday.

Emkes, who is Republican Gov. Bill Haslam's chief Cabinet officer, led a team of state officials who met with ratings agencies Moody's and Fitch in New York last week as part of an effort to keep Tennessee from losing its top credit rating. The meeting was arranged following Standard & Poor's recent downgrade of U.S. government debt.

Emkes said in an interview with The Associated Press earlier this week that his team stressed the willingness among the executive and legislative branches to make whatever cuts necessary to keep the state's budget balanced.

"We've told them time and time again that if we receive less money from the federal government, we have the political will to make those spending cuts," Emkes said. "We've done it in the past, and we'll do it in the future if necessary."

A full state delegation led by Haslam is scheduled to meet with all three ratings agencies next month.

Haslam spokeswoman Alexia Poe in an e-mail called the preparations for cuts "a responsible exercise to begin the planning process for anticipating the potential for less federal funding for state programs and services."

Deep spending cuts are required under the recent debt-ceiling agreement in Congress. A special bipartisan panel of 12 federal lawmakers has been tasked with crafting a compromise $1.5 trillion, 10-year debt reduction package. Under another part of the debt-cutting deal the two sides agreed to a separate $900 billion in 10-year savings from agency budgets.

Emkes told commissioners in his letter not to assume that state funds will make up for losses in federal money.

"You are not to supplant federal funds with state revenues as a funding source for continuing services," Emkes wrote.

Additionally, department heads are to identify state funds that would no longer be needed to draw down federal funds.

"This will enable the Administration to recommend priorities for the use of unmatched state funds," he wrote.